AG to propose strict rules for charities: Reilly targets
financial abuses
By Sasha Talcott, Globe Staff | May 5, 2005
Attorney General Thomas F. Reilly today is expected to propose
strict new rules for governing charities, including a requirement
that board members sign off on financial audits, curbs on executive
compensation, and $5,000 fines for violations, in an effort to stamp
out financial abuses.
If implemented, the new legislation would be among the most comprehensive
nationally to addresses financial governance at charities, executives
said. Reilly's legislation, sponsored by state Representative Daniel
E. Bosley and state Senator Mark C. Montigny, requires that most
board members on charities' audit committees be independent. It
would require all charities to pay their executives only ''reasonable"
compensation when measured against other nonprofit executives doing
the same work. It also would establish whistle-blower protections
for employees who flag financial problems. Bosley is a Democrat
from North Adams; Montigny is a Democrat from New Bedford.
''We want the boards and the management of charities to watch their
money much more closely and make sure the fiscal decisions they
make are sound and are in the best interest of the charitable mission,"
Reilly said.
An investigation by the Globe Spotlight Team in 2003 found financial
abuses at some charitable foundations, including extremely high
salaries paid to executives who worked few hours, perks for directors
such as private jets and luxury cars, and board members at some
foundations who directed legal and investment management contracts
to their own companies. In December, Paul C. Cabot Jr. of Needham
struck an agreement with Reilly's office to return more than $4
million to a family charitable foundation, and Reilly released documents
showing that Cabot used foundation money to make mortgage payments
and to pay bills at yacht and golf clubs.
Reilly's proposed legislation is less restrictive than a draft
version the attorney general's office floated last year. At the
time, an official in Reilly's office compared the financial abuses
to Enron and WorldCom and said charities needed an act modeled on
Sarbanes-Oxley, a federal statute that applied stricter rules on
corporate governance. But the current version of the legislation
has eased proposed rules around the audit committee and board certification,
largely to address concerns that it would burden small charities
and would discourage people from serving on boards.
''We've listened to their concerns, and we've made changes,"
Reilly said. ''The end result is common-sense reform."
Reilly's proposal would apply to all charities and nonprofits,
not just charitable foundations.
Paul Grogan, president of the Boston Foundation, said he would
look at Reilly's legislation with two main questions in mind: whether
it would burden smaller groups and whether it makes more sense to
step up enforcement of existing standards.
''You could argue, if people were made an example of, that might
be as effective as new legislation," he said. ''That's a question
I will have, if new legislation isn't going to add a lot of value
compared to what else might be done."
Grogan said he has not reviewed the legislation in detail yet.
But he said the Boston Foundation already complies with Reilly's
proposal.
A spokeswoman for another nonprofit that has talked with Reilly's
office, Blue Cross and Blue Shield of Massachusetts, said the company
is ''fully supportive of the spirit and the intent of the legislation."
In addition to tightening the law, Reilly's office has hired a
financial analyst to look into charities' finances and is establishing
a computerized database that will allow the attorney general to
electronically search charities' filings and potentially highlight
abuses. When finished, the database will be made available to the
public, Reilly said.
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